Wintermute Urges SEC to Exempt On-Chain Settlement from Outdated Rules in 2025
- Why is Wintermute Challenging SEC’s Legacy Settlement Rules?
- How Could On-Chain Settlement Reshape Market Infrastructure?
- What’s the DeFi Broker-Trader Distinction Wintermute Wants Clarified?
- How Does This Fit With Wintermute’s Broader Crypto Advocacy?
- What Are the Potential Market Impacts?
- How Are Other Crypto Firms Responding?
- What’s the Timeline for SEC Action?
- Frequently Asked Questions
London-based Wintermute Trading has formally requested the U.S. SEC to exempt blockchain-based securities settlements from legacy regulations, arguing that decades-old rules stifle innovation in digital asset markets. The firm’s proposal focuses on two key areas: allowing broker-dealers to settle trades directly on-chain without triggering customer protection rules and clarifying that DeFi liquidity providers shouldn’t need broker registration. This MOVE could streamline institutional adoption of tokenized assets but raises questions about investor safeguards in a less-intermediated system.
Why is Wintermute Challenging SEC’s Legacy Settlement Rules?
Wintermute’s October submission to the SEC’s crypto Task Force takes direct aim at Rule 15c3-3 – the Customer Protection Rule designed to prevent broker misuse of client assets. The firm contends that when broker-dealers settle tokenized securities directly on-chain with counterparties controlling their own wallets, they should qualify for an existing exemption from maintaining special reserve accounts. "Forcing legacy banking infrastructure into blockchain settlements would erase the efficiency benefits of on-chain settlement," Wintermute argued in its filing to Commissioner Peirce’s team. Following subsequent meetings, the trading platform maintained that "current rules were written for multi-layered intermediation – a structure blockchain makes obsolete."
How Could On-Chain Settlement Reshape Market Infrastructure?
The proposal suggests regulated dealers should develop customized clearance protocols for tokenized securities without triggering rules designed for client-facing brokers. This WOULD enable direct blockchain settlement between counterparties using risk-managed digital wallets rather than traditional custodial accounts. Industry analysts note this could reduce settlement times from T+2 to near-instantaneous while cutting operational costs by 30-50% according to 2024 data from TradingView. However, SEC staff have privately expressed concerns about audit trails and dispute resolution in such systems.
What’s the DeFi Broker-Trader Distinction Wintermute Wants Clarified?
Wintermute’s second request tackles the SEC’s historical divide between registered "brokers" (handling client orders) and exempt "traders" (trading proprietary capital). The firm seeks confirmation that DeFi liquidity providers and proprietary traders shouldn’t be classified as brokers simply for market-making activities. "Providing liquidity to permissionless pools shouldn’t require broker registration any more than running an automated market maker algorithm does," Wintermute stated on social media platform X. This interpretation could significantly impact decentralized exchanges (DEXs) like Uniswap and Curve Finance.
How Does This Fit With Wintermute’s Broader Crypto Advocacy?
The move continues Wintermute’s 2024 regulatory push, including September arguments that bitcoin and Ether shouldn’t be classified as securities. The firm maintains these assets are better understood as commodities or infrastructure tokens. "Misclassification drives innovation offshore," warned a BTCC market analyst familiar with the filings. Wintermute praised the SEC’s "openness to dialogue" while subtly pressuring for faster adaptation to blockchain-native markets.
What Are the Potential Market Impacts?
If adopted, these exemptions could accelerate institutional adoption of tokenized securities by reducing settlement friction. CoinMarketCap data shows the tokenized assets market grew 217% YTD to $12.8B as of Q3 2025. However, consumer advocates warn reduced intermediation might weaken investor protections. "Blockchain’s transparency doesn’t automatically prevent fraud," noted a former SEC enforcement attorney now at Stanford Law.
How Are Other Crypto Firms Responding?
Competitors like Galaxy Digital and Cumberland DRW have filed similar petitions, creating industry momentum for regulatory modernization. "Everyone’s waiting to see if the SEC treats this as a Wintermute-specific request or opens a broader rulemaking," observed the BTCC analyst. The outcome could influence whether more securities trading migrates to blockchain rails or remains tethered to legacy systems.
What’s the Timeline for SEC Action?
While the SEC hasn’t set formal deadlines, insiders suggest staff recommendations could emerge by Q1 2026. Wintermute’s persistence suggests they’ll keep pressure on through 2025’s holiday season. "This isn’t just about one firm – it’s about whether U.S. markets will lead or follow in blockchain finance," concluded our industry source.
Frequently Asked Questions
What specific SEC rule is Wintermute challenging?
Wintermute primarily targets SEC Rule 15c3-3 (Customer Protection Rule), which mandates segregated accounts for client assets. They argue this shouldn’t apply when settling directly between counterparties’ blockchain wallets.
Would this change affect retail crypto investors?
Not directly initially, but easier institutional on-chain settlement could eventually improve liquidity and asset choices for all market participants.
How does this relate to the SEC’s ongoing crypto enforcement actions?
It represents a parallel track – while enforcing existing rules, the SEC appears increasingly open to updating frameworks for blockchain-native activities.
